Smart Grid Development Needs a Business Model

The power industry is undergoing increasing pressure to accommodate governmental policy changes, “smarter” technology and changing consumer needs. These changes call for the transformation of current long-standing business models.
Published: Wed 05 Dec 2012

In the past, electricity and data traveled in one direction, with all but the largest of customers playing a passive role. Now, the introduction of smart grid technologies has added complexity to the network as it enables power and data to flow in multiple directions. In addition, it has called for the introduction of new role-players and business models and energy sources.

One of the major obstacles to smart grid development is the absence of a single clearly recognizable business model within which industry players can work. This is according to Engerati report The Future of the Smart Grid: The ICT and Data Management Perspective, written by authors Jane Fae and Professor Merlin Stone.

The conclusion is that this “disorganized view” is causing a delay in efficient decision-making. As a result, impulsive commitments are being made which lead to a poor Return on Investment (RoI). The key issues are as follows:

No capacity to capture and process data

Despite the massive investment in smart meter technology, the process of data capturing has been shelved. This is unfortunate as data capturing is key to the deployment of smart technology.

Insufficient focus on grid security and robustness

Smart technology has been installed without key standards or guaranteed interoperability which can lead to grid failure and security problems.

Building a dumb smart home

A growing smart home appliance market that interfaces with online applications and new concepts of home automation is unable to “communicate” with the smart grid.

Unintended consequences

A non-regulated small generator sector may develop outside the utility-dominated grid if the utility attempts to offer lower prices for locally and home-generated renewable energy.

The Future

Analysts are currently looking at two independent factors which are influencing the debate around the nature of the smart grid’s future business model:

Political argument

This is around the degree of state control and regulation required. Issues such as ownership, responsibility and standardization are more easily resolved within a central command and control approach. A good example of this is China. However, there are legitimate concerns that this approach may kill innovation although these can be circumvented by open competition for supply of hardware and services.

Business culture

There is a gap between the business culture which is needed for innovation within the smart grid (risk-taking, innovative, entrepreneurial) and the culture encouraged within utilities (risk-averse, commodity-driven, cautious)

Engerati Analysis 

The report predicts that the two views (Central Command and Control approach versus the Innovative business culture) will result in a “locked-in” global market where players will opt for the approach which best suits their needs.  The  authors predict that such a locked market will be dominated by one global super power, for example China, versus a variety of other players.

The time has come for utilities to revise business models that brought the electric utility industry success in the middle of the twentieth century. Without this transformation, the smart grid will not develop without the support of a new business model.


Engerati-The Future of the Smart Grid: The ICT and Data Management Perspective

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